Financial_Management_Flashcards_v2

1
Q

What are financial resources?

A

Financial resources are those resources in a business that have monetary value.

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2
Q

What is financial management?

A

Financial management is the planning and monitoring of a business’ financial resources to enable businesses to achieve their financial objectives.

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3
Q

What is the overarching aim of financial management?

A

The overarching aim is to effectively provide adequate financial resources to all the business functions in order to achieve all the business’ goals.

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4
Q

List some strategic roles of financial management.

A

Setting financial objectives and ensuring the business achieves its goals
Sourcing finances
Preparing budgets and forecasting future finances
Maintaining sufficient cash flow

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5
Q

What is the main responsibility of financial management?

A

The main responsibility is to make decisions about the best way to achieve its goals and objectives by identifying and evaluating alternative courses of action and making recommendations.

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6
Q

Define profitability in the context of financial management.

A

Profitability is the earning performance of the business and indicates its capacity to use its resources to maximize profits.

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7
Q

Why is long-term sustainability important for profitability?

A

Long-term sustainability ensures that profits can be maintained over time, which is crucial for the ongoing success of the business.

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8
Q

Define growth in terms of financial management.

A

Growth is the ability of a business to increase its size in the longer term.

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9
Q

What factors are essential for business growth?

A

The ability of the business to develop and use its assets effectively to increase sales, profits, and market share.

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10
Q

What is efficiency in financial management?

A

Efficiency is the ability of a business to minimize its costs and manage its assets so that maximum profit is achieved with the lowest possible level of assets.

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11
Q

What is the main aim of efficiency in financial management?

A

The main aim is to monitor levels of inventory, cash, and the collection of receivables so businesses can pay their debts when they are due.

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12
Q

Define liquidity in financial management.

A

Liquidity is the extent to which a business can meet its financial obligations in the short-term.

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13
Q

Why is controlling the flow of cash important for liquidity?

A

Controlling the flow of cash in and out of the business ensures that businesses have adequate funds when needed to meet financial obligations.

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14
Q

Define solvency in the context of financial management.

A

Solvency is the extent to which a business can meet its financial obligations in the long-term.

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15
Q

What is gearing?

A

Gearing is the proportion of debt (external finance) and the proportion of equity (internal finance) that is used to finance the activities of a business.

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16
Q

How do businesses measure solvency?

A

Businesses measure solvency through gearing, which is the percentage of assets of the business that are funded by external sources.

17
Q

What are short-term financial objectives?

A

Short-term financial objectives are tactical goals (1-2 years) and operational goals (day-to-day) of a business, which are reviewed regularly to ensure targets are met and resources are used efficiently.

18
Q

What are long-term financial objectives?

A

Long-term financial objectives are strategic goals (5+ years) that are broad and require a series of short-term goals to assist in meeting the long-term goal, reviewed annually for necessary adjustments.

19
Q

How can conflicts arise between short-term and long-term financial goals?

A

Conflicts can arise because achieving short-term goals like profitability and liquidity might hinder long-term goals like growth and expansion, requiring careful assessment and balancing by financial managers.

20
Q

How does pursuing long-term growth affect a business’s financial management?

A

Pursuing long-term growth may require taking on additional liabilities, such as external debt, which increases interest expenses and can lower solvency while increasing gearing, potentially conflicting with short-term objectives.

21
Q

How can a business’s growth affect its relationships with investors?

A

Business growth can attract investors by providing opportunities for additional funding, but it can also cause cynicism if increased debt and financial expenses reduce profitability and return on investment.